China's slowdown doesn't restrain prices

Kia ora, 

Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news commodity prices for some key industrial minerals, and producer prices overall are rising faster now.

But first we should note that China's carbon market seems to stumbling in its early stages. Prices are falling and are now only NZ$9.90/tonne. That is far from the New Zealand price of $65.00/NZU where we ended this week, and the EU price of NZ$103.50/tonne. It is even above the NZ$25.30 for the moribund Australian ACCU carbon market.

Meanwhile, China's new bank lending rose less than expected in August and not really bouncing back from the nine-month low seen in the previous month. Slowing credit growth indicated weakening financing demand from companies as their economy slows.

Indian industrial production rose +12% year-on-year in July, lower than the +14% in the previous month, but above market forecasts of +11%. It is the fifth month of double-digit growth due to low base effects from last year but it does reflect a fast improvement in the past few months.

German consumer inflation came in at almost +4% in August, and a 28 year high.

The US producer price index rose more than +8% in August from a year ago, more than expected and the biggest annual rise since they started keeping this data in 2010. This is in the context of the global supply chain shocks, domestic labour shortages of skilled workers, and fast rising commodity prices. It seems less likely this sharp producer price pressure in transitory.

It is not just a US phenomenon. China reported its PPI rise earlier this week as close to +10%, Japan recorded nearly +6% for July, Germany reported +10%, Taiwan +2%, South Korea +7%. Australia's +2.2% change is unusually restrained but New Zealand's +7% is mid-ranking on a world scale.

There will be no escape from this global rising tide - although we can mitigate it with a rising currency, and ours has in fact risen +2.2% since the end of July. However it is clear such a move will only take the top off this coming global inflation threat.

One response the rest of the world seems to be taking is to spend up big on new capex, driving for productivity improvements. Global capex spending is booming, especially for software.

Separately, the Americans are reporting that they will import more beef at higher prices. The same report says their milk production will fall and price forecasts were raised.

On the commodity front, nickel prices surged towards US$20,400 a tonne for the first time since May 2014, boosted by strong demand from stainless steel mills and electric vehicle battery makers, along with shrinking inventories. Copper and aluminium prices are also rising in a broad rally today. Going the other way, wheat prices are falling, although that is from already generally high levels.

Canada reported that their August employment rose +90,200 in the month, two thirds of it as full-time employment. Although this was slightly less than was expected, their summer re-openings helped. They are actually now close to recovering all the pandemic job losses.

In Australia, the APRA boss says they are monitoring a rise in highly leveraged mortgages as the regulator considers potential macro-prudential measures to cool the surging housing market. It is a market expected to fly again when pandemic restrictions ease as vaccination rates rise.

The UST 10yr yield opens today at just over 1.34%, so unchanged since the close of trading in New York last week. 

The price of gold has slipped -US$4 today and now at US$1787/oz.

Oil prices have held unchanged over the weekend, so in the US they are now just over US$69.50/bbl, while the international Brent price has risen to just over US$72.50/bbl. That is a +2% gain over the past week.

The Kiwi dollar opens today at 71.1 USc and little-changed since this time Saturday, but -40 bps lower since this time last week. Against the Australian dollar we are +½c firmer at just over 96.8 AUc and +70 bps firmer over the whole week. Against the euro we are unchanged at 60.3 euro cents. That means our TWI-5 starts today at just on 74.2, little-changed for both the day and the week and still right at the top of the 72-74 range of the past ten months.

The bitcoin price has stayed down, now at US$45,878 and just +0.2% firmer than this time Saturday. Volatility in the past 24 hours has been modest at just under +/- 1.7%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.